Originally Published on August 13, 2012 Singapore Business Times Online

By ANNA LEE

A penny saved is a penny earned. And the emergence of online penny auction sites may offer more bang for the buck for tech-savvy Internet users.

The "penny" in the name refers to the increment of a penny, or equivalent small sums, to the bidding value of an item. A player makes a bid by placing a token that increases the bid by the said sum; in turn, each token costs a sum greater than the increase in the bid. In most cases, a token costs between 75 cents and a dollar, while the increments can be 5-15 cents on average.

After a predetermined time-limit, the auction is closed, and the final bidder wins, paying the prevailing amount of the bid, in addition to the amount spent on bidding.

Penny auction sites are gaining significant traction with consumers in Singapore, although the trend started about eight years ago in the West.

"It's not like any other auctions, whoever has more money will win. It's about when you go in, and how you bid," says Jeremy Yap, director of PBA Solutions. The allure of online bidding lies in the "fun", in addition to the savings that accrue "because the buying power of the group is always more than the buying power of the individual", he adds.

And consumers are spoilt for choice. Says Mr Yap: "There are a lot of players in the market . . . and consumers have too many options; the pool of users are the same, but the auction sites keep on increasing."

Winners of Bid, for example, was launched at the start of this year, and has a steady pool of users with more than 400 registered members five months after its launch. Managing director Angela Low acknowledges that although "people think it's very easy to start such an online auction site, it is actually very hard to keep members staying", due to the intense competition.

Ministry of Bids (MOB), however, says that it sees a healthy client pool, with more than 30,000 unique visitors and over 10,000 regular users. Managing director Thomas Ong says that the one-year-old outfit is now one of the top three in the market. In fact, the site had to increase its server size six times, and it broke down even during its pre-launch.

However, Yoshi Takemoto, chief executive of Japan-based Wow Auction, has observed lacklustre performance from the Singapore market. Compared to Wow sites in Taiwan and Japan, he notes, locals "don't get as excited" and "e-commerce is slower in Singapore".

"We lose more in Singapore, but if we lose, that means customers are winning. If that continues, that will bring more people into play," he reasons.

Response aside, it is acknowledged that tech products are the hottest items on these sites. From Apple must-haves to the latest DSLR, many auction sites offer quality products at huge savings.

MOB goes a step further by offering limited edition IT and fashion goods. "One thing special about MOB is that we bring in goods that are not available in Singapore," says Mr Ong.

For example, there are Apple TV, Google TV, Kindle Fire and other digital gadgets that are not available here. Even Hello Kitty series are a hit on the site, where limited series are put up for auction.

Mr Ong notes that "it's not always the case that the latest gadgets are the most popular items". The release of the iPad 4G, for example, did not see as much hype as did iPad 2; instead, eBook readers such as Kindle Fire have risen in popularity.

However, a penny saved is not a penny earned if you still owe a quarter. Penny auctions may portray themselves as offering steep savings on luxury goods, but may not necessarily do so. Detractors often compare such online auction sites to gambling.

An msnbc.com report quotes gaming law specialist Joseph J Lewczak, who said that "doing something truly as a penny auction . . . there's no doubt in my mind that's an illegal lottery . . . but I believe they could be conducted correctly".

Do not be taken in by claims that you can save up to 70 per cent of the price when the final price of the item goes for only 30 per cent of the official retail price. The money exhausted to place bids may be far greater than the cost savings - the classic case of over-bidding, says Mr Takemoto. And there isn't even a guarantee that one will win the bid.

Interestingly, some sites have seized on that to stand out. Winners of Bid, for example, has a "bidding charm". Ms Low says that its "bidding charm acts like an insurance, and we will refund 35 per cent of the token placed to bid for the item if more than 200 tokens were used and the bidder did not finally win the bid".

Many sites also have features that allow bidders to exchange their won items for more goods to bid for, in an effort to safeguard consumer interest.

Mr Ong says that more than 60 per cent of the time, bidders benefit from their bids. Moreover, the costs perhaps should not be a big consideration because sites seem to have evolved from mere cost-saving enterprises to a form of entertainment.

"While there may be a lot of bargain hunters, it's not just about saving but it also is the fun of bidding that attracts these bidders," Mr Ong says.

Mr Takemoto agrees. "A lot of it is thrill, excitement and strategy - on top of getting good products at great discounts."

One should still not let their guard down and be more aware of the dangers that some sites pose. Shilling or sniping is a problem that has plagued online bidding sites since time past.

"In the market, there are raw software available that are being mass produced. Individual (bidders) then can approach the software engineer to develop a sniping tool, which will wait for the very last second to enter the auction to bid and beat everyone else," explains Mr Yap.

Sites such as bidderrobot.com and auctionraptor.com readily offer such sniping tools that heavily compromise the integrity of the auction. That is why bidders should be sure of the credibility of the auction sites they wish to bid on, while potential site owners should seek to customise their site rather than purchase off-the-shelf software.

Amid the controversies and seemingly many ways to beat the system, the pure form of the penny auction concept seems to have taken on a different currency.

PBA has received many corporate requests to adopt the penny-bidding concept. "Singaporeans are always a bit sceptical about new stuff, and it will take some time. What will possibly come out instead is the corporate twist . . . As e-selling gets more accepted, this will be probably the next thing," says Mr Yap.

Whatever form penny auctions take, though, users should still exercise caution and weigh their options - so as to avoid being "sucker- punched".